The Highest Level of Wealth Isn’t a Number
When are you wealthy?
Is it when you have $1 million? $5 million? $10 million?
We tend to measure wealth with numbers: income, investment balances, net worth, the value of a business or real estate.
But those numbers only tell part of the story.
Author Darius Foroux offers an interesting way to think about wealth in his article, The 5 Levels of Wealth. Rather than defining wealth by a particular dollar amount, he describes a progression from Survival to Stability to Security to Independence and, ultimately, Peace.
We like the framework because it reflects something we see in financial planning all the time:
Having more money and feeling wealthy aren’t necessarily the same thing.
With credit to Foroux for the framework, we want to look at these five levels through the lens of financial planning—and a question we think may be even more useful than asking how much money you have:
What does your money allow you to do?
Level 1: Survival
At the first level, money controls nearly everything.
Most or all of your income is needed to pay today’s bills. An unexpected car repair, medical expense, or loss of income can create a genuine financial crisis.
When you’re here, financial planning isn’t primarily about maximizing investment returns or implementing sophisticated tax strategies.
It’s about creating breathing room.
The goal is to spend less than you earn, manage debt, establish an emergency reserve, and begin saving consistently.
That may not feel like building wealth, but it is.
Because one of the first things money can buy isn’t a bigger house or a nicer car.
It’s margin.
And even a little financial margin can begin to change the decisions available to you.
Level 2: Stability
Eventually, that margin becomes meaningful.
You have money available for emergencies. An unexpected expense may be frustrating, but it doesn’t derail your finances. You’re no longer depending on every paycheck arriving exactly when expected.
Something important begins to happen at this stage:
You have choices.
Instead of asking, How am I going to pay for this? you can begin thinking about what comes next.
Can we save more?
Should we invest?
Could I change jobs?
Can we take the family on that vacation?
Money hasn’t created financial independence yet, but it has reduced some of the pressure.
That may be more valuable than it appears on a balance sheet.
Level 3: Security
At the next level, you’ve accumulated meaningful financial resources.
You have savings, investments, retirement accounts, and reliable income. A financial setback might hurt, but it probably isn’t going to destroy everything you’ve built.
This is where money starts providing something extremely valuable:
The ability to say no.
No to a job you hate.
No to an opportunity that doesn’t fit your life.
No to taking investment risk you don’t need.
No to allowing someone else’s priorities to dictate your decisions.
Financial security doesn’t mean nothing bad can happen.
It means a financial setback is less likely to determine the direction of your life.
For many people, reaching this stage is an enormous accomplishment.
But there’s another level.
Level 4: Independence
Financial independence occurs when you’ve accumulated enough resources that work becomes optional.
That doesn’t necessarily mean you stop working.
In fact, many financially independent people continue working for years.
The difference is why they’re working.
They may continue because they enjoy building a business. They like solving problems. They value their relationships with colleagues or clients. They want to mentor younger people. Or their work simply gives them purpose.
But they’re no longer working because they absolutely need the next paycheck.
Money has given them greater control over one of life’s most valuable assets:
Their time.
And this is where financial planning becomes much more interesting.
The question begins to change from:
Can I afford to retire?
to:
What do I want to do with the time and resources I’ve accumulated?
That’s a very different question.
Level 5: Peace
Foroux’s final level is Peace, and we think this may be the most interesting of all.
It’s reaching a point where you understand what enough means for you.
That can be surprisingly difficult because there’s always someone with more.
A bigger house.
A larger portfolio.
A more successful business.
A nicer boat.
More travel.
More everything.
If wealth is measured entirely by comparison, there is no finish line.
But eventually, some people stop moving the goalpost.
They understand what their money is for.
They know what they want their lifestyle to look like. They know what they want to provide for their children and grandchildren. They know which experiences matter to them. They know what causes they want to support. And, most importantly, they have confidence that their financial resources can support those things.
Money hasn’t disappeared from their lives.
It has simply moved into its proper place.
Money becomes a tool rather than the scorecard.
That’s a pretty good definition of financial peace.
Your Balance Sheet and Your Mindset Don’t Always Match
Here’s where we would add something to the five-level framework.
Your financial circumstances and your relationship with money don’t necessarily progress at the same pace.
Someone can have enough money to be financially independent and still feel as though they’re struggling to survive.
We see versions of this frequently.
Someone who grew up without much money may continue worrying about running out even after accumulating substantial wealth.
A business owner who spent decades knowing that one bad year could threaten everything may have difficulty believing that he or she is finally financially secure.
And someone who spent 40 years saving for retirement can find it surprisingly difficult to begin spending those savings once retirement arrives.
The financial plan may tell them:
You have enough. You’re going to be OK.
But emotionally, they may not believe it yet.
Mathematically, they’ve reached Independence.
Emotionally, they may still be living at Security—or even Stability.
That’s one reason we believe financial planning is about much more than investment returns and account balances.
Knowing You Have Enough Can Change Your Life
One of the most important things a good financial plan can do is help answer a deceptively simple question:
Am I going to be OK?
Once we can answer that question with confidence, another question becomes possible:
What else could I be doing with my money?
Maybe you can retire earlier than you thought.
Maybe you can travel more while you’re healthy enough to enjoy it.
Maybe you can help your children or grandchildren today rather than leaving them a larger inheritance decades from now.
Maybe you can buy the vacation home.
Maybe you can give more to charity.
Maybe you can work less.
Or perhaps you love your life exactly as it is and don’t need to change anything.
The point isn’t that having enough means you should spend more.
It means you have the freedom to make decisions based on the life you want rather than fear about the future.
Sometimes the Hardest Transition Is From Saving to Living
Accumulating wealth requires discipline.
You earn. You save. You invest. You avoid unnecessary mistakes. And you give compounding enough time to work.
Those habits are extraordinarily valuable.
But there can come a point when the very habits that helped you build wealth make it difficult to enjoy what you’ve built.
Someone who has spent an entire career maximizing savings may struggle to spend.
Someone who has spent decades growing a business may struggle to step away.
Someone who has always measured progress by a rising net worth may struggle with deliberately giving money away.
Eventually, the purpose of wealth has to evolve.
The objective can’t simply be to die with the largest possible account balance.
At some point, the question has to become:
What is all this money for?
What Is Your Money For?
This is one of our favorite questions because there isn’t a universal answer.
Your money might be for security.
It might be for experiences with your family.
It might allow you to retire at 60 instead of 65.
It might allow your children to graduate from college without debt.
It might allow you to help your grandchildren buy their first homes.
It might allow you to support organizations that matter deeply to you.
Or it might simply allow you to wake up every morning knowing that you have choices.
That’s what we like most about Foroux’s five levels. The progression isn’t ultimately about accumulating more and more money.
It’s about changing your relationship with it.
At first, you work for money.
Eventually, your money works for you.
And perhaps the highest level is when money supports your life without defining it.
The Bottom Line
Building wealth matters.
Saving matters. Investing matters. Tax planning matters. Protecting what you’ve accumulated matters.
But none of those things is the ultimate objective.
Your life is.
The purpose of financial planning isn’t simply to help you accumulate the largest possible pile of money. It’s to help you use your resources to create security, independence, choices, experiences, generosity, and ultimately the life you want.
Perhaps that’s the best definition of wealth:
Having enough—and knowing that you have enough—to live the life you want without money getting in the way.
If you’re wondering whether you’ve reached that point, we’d be happy to help you answer the question—schedule a complimentary 15-minute call.
This article was inspired by author Darius Foroux’s The 5 Levels of Wealth. We’ve adapted his five-level framework to explore how we think about wealth and Life-Centered Financial Planning at Stordahl Capital Management.
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